The gradual tightening of the Japanese labour market remains intact: this should continue to put upward pressure on wage growth, inflation and JGB yields in 2025, as it did last year. Indeed, after hitting a record in October, employment rose by a further 100k in November, to a fresh high, with strong gains in the information & communication sector.
The unemployment rate held at 2.5% in November, but a broader measure of unemployment, that accounts for labour underutilisation, has fallen to a new secular low. The labour market participation rate hit a new secular high of 63.43% too. The latest Tankan survey for December suggests the labour market could tighten further in Q1: the non-manufacturing employment index fell to the lowest since 1991 (a lower number indicates a tighter labour market).
Ex-fresh food & energy, nationwide CPI inflation firmed to 2.37% in November. Tokyo CPI inflation (ex-fresh food & energy) has been softer, easing to 1.80% in December. However, base pay (contractual, scheduled cash earnings) grew 2.5% y/y in October and services PPI inflation was running at 3.0% in November, pointing to growing underlying inflationary pressures that contributed to the weak yen and higher JGB yields last year.
